Bonner v Chief Commissioner of State Revenue [2022] NSWSC 441
Background
The Plaintiffs operated a business acting as agents for persons seeking work as models in advertising and promotional material, which involved entering into contracts with clients to supply the services of such models. The First Plaintiff, Ms Chelsea Bonner, operated the relevant business up until 1 July 2016.
Thereafter it was operated by the Second Plaintiff, Bella Management Group Pty Ltd (“Bella”). Ms Bonner was the sole director of Bella at all relevant times after 1 July 2016.
The Chief Commissioner assessed the Plaintiffs as liable to payroll tax on the models’ remuneration for the 2014 to 2016 financial years and for the first 5 months of the 2017 financial year. The assessments were issued on the basis that the models’ remuneration was “taxable wages” under Div. 8 of Pt. 3 which deals with the imposition of payroll tax on employment agents. Section 37 of Div. 8 defines an employment agency contract as a contract under which a person (an “employment agent”) procures the services of another person (a “service provider”) for a client of the employment agent.
The Appeal Panel refused leave to appeal and dismissed the Plaintiff’s’ appeal. The Plaintiffs subsequently sought leave to appeal in the NSW Supreme Court.
Decisions of Justice Basten in the Supreme Court
1. Characterisation of the agency contracts
Having regard to the terms of the standard management agreement between Bella and the models, Justice Basten found that the agreement was not a contract of employment contract with the models, but rather a management agreement for the purposes of obtaining work for the models with clients of the agency. Under this agreement, Bella was required to negotiate contracts between the model and the client, administer the contract, receive payment from the client and pay to the model the balance of the earnings after deducting a commission and expenses: [46].
2.Challenges to the Appeal Panel’s findings
The Plaintiffs challenged the findings of the Appeal Panel in arguing that it erred in its application of s. 37 of the Act. All challenges to the Panel’s findings were rejected.
a. Were the model working in and for the businesses of clients?
Justice Basten noted (at 64) that the Appeal Panel had accepted that the correct test to be applied was the test of whether work was done by the models “in and for the conduct of the business of the employment agent’s client” as derived from the decision of White J in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1852 (“UNSW Global”). The Appeal Panel also applied the factors specified by Ward CJ in the Bayton Cleaning case, (“the Bayton factors”), namely:
"... whether the services are provided on-site, whether they are provided with a degree of continuity or regularity (or are ad hoc), and the extent of interaction and supervision with or by the client’s staff (and, where relevant, the client’s customers or, in the case of retirement villages or aged care centres or hospitals or schools, the residents or users of services in those places.)"
His Honour held that the Panel correctly applied the UNSW Global test based on Ward CJ’s reasoning in Bayton Cleaning, by undertaking a fact-sensitive analysis, which had regard to the more meaningful factors in the circumstances of the particular case: [67]. He concluded that the Panel’s reasoning was consistent with this approach and involved no error of law, noting that the question of whether the modelling services were provided on-site may be less relevant than in the provision of cleaning services (as was the case in Bayton Cleaning).
b. Were the models working with a sufficient degree of continuity or regularity?
The Plaintiffs challenged the Appeal Panel’s rejection of the contention that the Tribunal made a “selective” finding that some models worked continuously for the same client.
His Honour noted that the precise error of law revealed by this finding was not articulated and held that it was not possible to derive any error of law from the Panel’s reasoning. The Tribunal had made a finding of fact that the Plaintiffs had not established that there was “discontinuous employment” of the: [71] – [73].
c. Were the models working with a sufficient degree of continuity or regularity?
The Plaintiffs contended that the Appeal Panel had made an error of law by failing to find that the Tribunal made an error of law in determining that the clients or their staff had the ability to direct or control the performance of the models, or involved a misapplication of principle. This finding correlated to one of the factors observed in Bayton Cleaning, which was whether the cleaning agency’s workers were effectively added to the client’s workforce and provided their services in a similar way to the client’s staff. The Plaintiffs argued that the correct conclusion was that the client was not able to direct or control the performance of the models.
His Honour held that it was difficult to identify any error of law in the Panel’s reasoning, noting that a finding of fact which was claimed to be “against the weight of evidence” did not involve an error of law: [79] – [81].
d. Failure to apply the Entertainment Industry Act 2013
The Plaintiffs argued that the Appeal Panel did not have regard to the terms and operations of the Entertainment Industry (EI) Act in interpreting s. 37 of the Payroll Tax Act.
His Honour rejected this ground for three reasons: [85] – [88]:
- the EI Act covered “entirely different territory” to the Payroll Tax Actsuch that the meaning of s. 37 was not affected by the EI Act;
- the Appeal Panel did not err in failing to consider the operation of the EI Act because it was not raised as a ground of appeal before it;
- no error was identified in the reasoning of the Tribunal which might have been implicit in the reasoning of the Appeal Panel.
e. Failure to consider penalty tax
The Plaintiffs argued that the failure to consider the imposition of penalties and the failure to accept an application for remission of penalties constituted procedural unfairness to the plaintiffs. The Tribunal found there was no evidence that the plaintiffs sought relevant professional internal or external advice before 14 March 2016 and was therefore not satisfied that the Plaintiffs took reasonable care to comply with the tax law prior to that date. Therefore remission of penalty tax prior to that date should not be granted under s.33 of the Taxation Administration Act 1996. The Plaintiffs’ notice of appeal to the Appeal Panel did not mention the Tribunal’s finding with respect to penalty tax in the statement of grounds. However, the Plaintiffs included a ground dealing with penalty tax in reformulated appeal grounds filed following the Appeal Panel hearing.
Justice Basten noted there was no challenge to the Tribunal’s finding that remission of tax before 14 March 2016 was not warranted, and no submissions were made in respect of penalty tax other than the Chief Commissioner’s objection to the issue being revisited before the Appeal Panel. Ultimately, his Honour concluded that this ground of appeal was an abuse of process and should be rejected: [101]
Justice Basten’s Commentary on the construction of s 37 of the Act
His Honour criticised the formulation expounded in the UNSW Global decision which interpreted the word “for” in the provision “procures the services of another person … for a client of the employment agent” as being limited to “a contract under which a person procures the services of another person in and for the conduct of the business of the employment agent’s client”. His Honour remarked that the italicised words are a gloss on the statute and have acquired a label: the “in and for” test: [15].
His Honour noted that “uncertainty as to the intended scope of the additional words has led to a proliferation of glosses upon the gloss”: [16]. He also observed that it is an error, as in Bayton Cleaning, to “focus on the manner in which the services are provided for the client, unless such material would in some way assist in the characterisation of the contract”: [19].
Justice Basten was also critical of other constraints developed in the case law such as:
- The implication of an “employee-like” relationship between the service provider and the client which his Honour said is not consistent with the statutory language: [33].
- The imposition of some geographic limitation on where the work may be performed: [35].
- The dissection of elements of the client’s business to identify its “core”: [35].
His Honour stressed that in defining an “employment agency contract”, the statute focuses on the arrangement between the service provider and the employment agent: [35].
In respect of this appeal, his Honour commented that because the case had been dealt with by both parties in the Tribunal and the Appeal Panel on the basis that the “in and for” test was correct, the appeal to the Supreme Court must also be dealt with on that basis: [41].
Justice Basten observed that White J’s departure in UNSW Global from his own approach adopted earlier in Freelance Global in favour of a purposive construction was not persuasive: [107]. Part of his Honour’s reasoning is that that there was no consideration in UNSW Global of the extent to which a single judge of the Court is bound by an earlier judgement on precisely the same legislation in similar circumstances, whether or not it was given by the same judge: [107].
Justice Basten disagreed with the assumption made in UNSW Global that Div. 8 of Pt. 2 of the Act is a set of tax avoidance provisions: [110]. He stated that even supposing they are tax avoidance provisions, it is doubtful whether significant assistance may be gleaned as to the boundaries of its operation from statements at high levels of generality: [111]. To rely on examples which do not arise on the facts under consideration when construing a statute (referring to the argument in UNSW Global that a textual reading of s. 37 may permit absurd or unintended results) risks “[t]he text becom[ing] submerged in the illustrations” (paraphrasing Windeyer J in Damjanovic & Sons: [114]. In his Honour’s view, it is “not possible [in the instant case] to say that the drafter has made a mistake, or achieved an absurd and unintended result, where an alternative construction is reasonably clear”: [115].
His Honour ultimately concluded that the existing case law warrants appellate review: [116].
The Court made orders granting leave to appeal and dismissing the appeal with costs.
Decision
Link to the decision